Despite increasingly stiff
competition in the market, PSO managed to reemerge as the market leader
with an overall 65% market share.

AHMAD MA'AZ SHAMAIL
Feb 05 - 11, 2007

The latest attempt by the government to
sell 51 per cent shares of Pakistan State Oil, the largest oil marketing company
enjoying 65 per cent share of the overall market, along with management control
to a strategic buyer attracted submission of statements of qualification from 12
companies/groups last month.

The 12 companies and groups which
submitted the SoQs last month were: Abraaj Capital, UAE; Abu Dhabi Group, UAE;
Al-Ghurair Investment, UAE; consortium of Aljomaih Group, Saudi Arabia; Noor
Financial Investment, Kuwait; National Industries Group; Bakri International
Energy Systems and Dabbahg Group Holding, Saudi Arabia; Goldman Sachs (Asia)
Finance; Vitol SA (Switzerland); and local companies and groups MCB Bank; Fauji
Foundation; Attock group of companies; and Kohinoor Group led by Kohinoor
Textiles from Pakistan. Jomaih Holding, Al Ghurair Investment, Vitol, Abraaj and
Fauji Foundation also submitted expressions of interest for the strategic sale
of the entity in April 2005. They were among the companies that had earlier
submitted a total of 15 EoIs.

PSO is the largest oil marketing
company in Pakistan. In the fiscal year 2005-06 ended June last year its
turnover was in excess of $ 5.8 billion and a market share of over 78% in Black
oil and 57% in White oil. It is the first Pakistani public sector company to
become member of the World Economic Forum (WEF). By the end of 2005-06 it had
3,700 retail outlets across the country, including 1,459 New Vision Outlets
commissioned during the last seven years. It has a large storage capacity that
makes up almost 81% of total national storage, i.e. around 8,60,000 metric tons.

The fiscal 2005-06 was a record year
for PSO in many ways: an all-time high profit before tax of Rs. 11.7 billion,
unprecedented profit after tax of Rs. 7.5 billion, up by around 33 per cent over
the previous year. PSO also declared an all-time record cash dividend of 340% or
Rs. 34 per share. The company recorded the highest Mogas market share of 45.3
per cent in last 10 years and expanded its cards infrastructure to 1,200 sales
points in over 170 cities. It received Management Excellence Award-2005 from the
Management Association of Pakistan and rated as AAA (Triple A) company by
Pakistan Credit Rating Agency (PACRA).

FINANCIAL RESULTS

During FY'06, the company sales revenue
touched Rs 353 billion (net 298.25 billion) compared to Rs 254 billion (net
212.50 billion) in the previous year. Consequently, PSO recorded on all-time
high profit before tax of Rs 11.7 billion, up by 27 per cent over the previous
year, and profit after tax of Rs 7.5 billion, up by 33% over the previous year -
an all time high earning per share of Rs 43.90. The company paid record cash
dividend of Rs 34 per share against 26 per share last year. Total assets
increased to Rs 70.17 billion from 52.30 billion, up by 34.15 per cent. It paid
Rs 58.8 B taxes to the government and distributed Rs 5.8 B to shareholders in
dividends. Its assets were valued at Rs 70.168 B.

It has been a market leader with an
overall share of 65 per cent, including 45.3 per cent market of motor gasoline
for the last 10 years, HSD share of 59 per cent and 60.7 per cent share of JP-1
(Jet Fuel). Its sales volume was 9.8 million tons in fiscal 2006, which was
marginally more than 9.7 million tons in fiscal 2005.

PSO is listed on all the three stock
exchanges of the country, and is the recipient of the Karachi Stock Exchange's
Top 25 Companies Award for 18 consecutive years. It enjoys AAA (Triple A)
company grading by the Pakistan Credit Rating Agency (PACRA).

PSO is the only one of the two
companies that made the list of 100 top business entities in the Muslim world by
business strategy e-magazine Dinar Standard, covering 57 member countries of the
Organisation of Islamic Conference (OIC). The other Pakistani company that made
the ranking, called the DS100T, was the Oil and Gas Development Corporation. The
ranking was based on the revenue figures of 2005.

THE INDUSTRY

Though increased international oil
prices affected the domestic price, a structural shift is evident in the energy
consumption pattern of Pakistan. Though consumption of petroleum products is
declining, the consumption of other components of energy is on the rise.

Consumption of petroleum fuel products
showed a modest growth of 0.4 per cent in fiscal 2006- consumption of white oil
products declined by 4.4 per cent mainly due to a 4.6 per cent decline in the
use of HSD, a major contributor while that of mogas declined considerably by
about 10.5 per cent due to the availability of less expensive alternative fuel.
In 2005-06, CNG consumption increased substantially by almost 47 per cent over
the previous year as the number of vehicles increased in the country.

On the other hand, the consumption of
black oil products increased in fiscal 2005-06 by 10.4 per cent, while the
consumption of furnace oil rose by 11.4 per cent. During the first three
quarters of FY'06, furnace oil consumption declined over the same period of
previous year mainly due to the presence of sufficient reservoir levels for the
generation of hydroelectric power projects at the start of the fiscal. The
situation reversed after March 2006 when water availability declined, thus
increasing furnace oil-based thermal power generation.

REDUCTION IN MARGIN

The oil marketing companies suffered a
setback when the government changed the oil pricing formula w.e.f March 16,
2006, resulting in reduction of OMCs margin by 20%. In addition, OMCs faced a
financial burden as a result of government's subsidy to the consumers, through
OMCs, to protect them against oil price increase. The mandate for setting
fortnightly oil prices was given to the Oil & Gas Regulatory Authority (OGRA),
w.e.f April 1, 2006 .

CONCLUSION

Despite the increasingly stiff
competition in the market, PSO managed to reemerge as the market leader with an
overall 65% market share. It also consolidated its position by improving its
retail marketing position in Mogas and CNG. The company also added over 200 New
Vision Outlets to its retail network, bringing the total to over 1,450.

With so much going on, let's see if the
latest attempt to privatize PSO succeeds, particularly in the context of a
pre-bid meeting for privatization called in January 2006 produced no result as
well as the earlier attempts made in May 2005 and August 2002 could not produce
the desired result.